SEBI unveils ASBA-like facility for trading in secondary market

SEBI unveils ASBA-like facility for trading in secondary market

Coming into effect in January 2024, it will provide enhanced protection of cash collateral

The Securities and Exchange Board of India (SEBI) has introduced an ASBA (Application Supported by Blocked Amount)-like process for trading in the secondary market. It will be based on blocked funds in the investor’s bank account, instead of transferring them upfront to the trading member.

The facility will be provided by integrating the Reserve Bank of India (RBI)-approved Unified Payments Interface (UPI) mandate service of single-block-and-multiple-debits with the secondary market trading and settlement process and ‘UPI block facility.’

In its circular, SEBI stated that under the proposed framework, funds shall remain in the bank account of the client. However, these will be blocked in favour of the clearing corporation (CC) till the block is released by the CC, or debit of the block towards obligations arising out of the client’s trading activity.

Also, the settlement for funds and securities will be done by the CC without the need to handle client funds and securities by the member.

The circular further read that upon creation, a UPI block shall be considered collateral. It would also be available for settlement purposes. For clients preferring to block a lump-sum amount, the block would be debited multiple times, subject to the available balance, for settlement obligations across days.

However, availing of the UPI block facility (provided by the stock broker) would be at the option of the investors. Since an investor is allowed to have trading accounts across multiple stock brokers, he/she can choose to avail of the facility under some brokers and non-UPI-based trading under others.

But after opting for a UPI block facility under particular brokers, all cash collaterals would be provided only through UPI block. Cash-equivalent collateral, such as bank guarantees and fixed deposits, won’t be permitted. Securities collateral is to be provided through a pledge/re-pledge system and only those in the CC’s approved list would be provided. Funds pay-in settlement will have to be done only through the UPI block.

Additionally, the single-block limit of Rs. 5 lakh will apply, even while multiple blocks can co-exist subject to the overall limit applicable in UPI.

The capital market regulator said the client could request the release of the block to trade members through the app. It has to be communicated to the CC through the clearing member. Upon release of the block, the client’s bank shall unfreeze the amount in the account.